Natural Gas Prices Reach 2-Year High

Natural gas prices climbed to their highest levels in two years on the spot market today amid what experts said was a combination of bitter cold weather and a fresh dispute between pipelines and gas producers over a Government ruling that went into effect last Friday.

Executives at several large users of natural gas, including steel and paper mills and auto manufacturing plants, said gas supplies appeared to be plentiful but that they had adjusted to the higher prices where possible by switching to No. 6 fuel oil.

The recent decline in fuel prices is expected to keep gas prices from climbing much further because many industrial users of natural gas have spent millions in recent years to install oil-burning units.

Natural gas was priced as high as $2.10 per million British thermal units today on the spot market, up from $1.70 a month ago and $1.50 early last year. Because transportation costs often add 70 cents per million B.T.U.'s or more, gas is more costly in some regions than fuel oil, which has fallen below $2.40.

''We've gotten to the point where we can burn fuel oil more cheaply,'' said Carl J. Schleck, who buys energy for more than 100 plants operated by the James River Corporation of Richmond, a major producer of paper products.

''Our only choice is to switch our facilities wherever we can to fuel oil, and we started that this week,'' said Richard J. Fillman, vice president of corporate energy affairs at the Bethlehem Steel Corporation. Natural gas costs represent more than 20 percent of the steelmaker's annual operating costs, he said. ''We're having to pay higher prices and that hurts us on the bottom line,'' Mr. Fillman added. Flexibility for Pipelines

A new rule put into effect last Friday by the Federal Energy Regulatory Commission permits pipeline companies to reduce the amount of gas they are obliged to buy from producers by whatever volumes the producers sell directly to other customers, rather than to the pipeline.

The anticipation that many producers would refuse to sell gas under these terms prompted some utlities and major industrial users of natural gas to increase spot market orders, forcing up prices, said John E. Olson, an energy analyst with Drexel Burnham Lambert Inc., in Houston.

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Instead, most pipelines and producers reported today that shipments were normal. In addition, many pipelines were operating close to capacity. ''We've not had any difficulty of supplies being held back,'' said Dan Dienstbier, president of the gas pipeline group of the Enron Corporation, in Houston.

The Southern California Gas Company, the nation's largest gas utility, said last Friday that it would temporarily cut off shipments to 800 business customers to avoid shortages to residential customers. The utility buys much of its gas supplies on the spot market, where until recently prices were lower than in longer-term contracts.

He and other executives and analysts said that gas supplies generally were plentiful but that isolated shortages similar to the one in southern California were possible during the winter months. Some analysts say a gas shortage might occur next winter because of slowed drilling activity.

Natural gas prices are followed closely in the oilpatch. A sustained increase, to $2 per million B.T.U.'s through the winter, would offset some of the lost revenue anticipated from falling oil prices. Also, more of the nation's natural gas reserves, which are far more plentiful than for oil, could be tapped at higher prices.

But natural gas prices cannot climb much further if oil prices are weak, because so many natural-gas users can switch to oil when it becomes less expensive.

Paul J. Milbauer, an analyst with Cyrus J. Lawrence Inc., in New York, attributed most of the tightness in the spot market to uncertainty over the impact of the new ruling, known as Order 500. He said spot prices were likely to decline to about $1.50 per million B.T.U.'s after the winter season of peak demand.

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A version of this article appears in print on January 5, 1988, on Page D00001 of the National edition with the headline: Natural Gas Prices Reach 2-Year High. Order Reprints|Today's Paper|Subscribe